Outstanding M&A financing used to fund acquisitions by Japanese companies is increasing. Most of it is provided by the three megabanks—Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group—with LBO loans serving as the main method.
Outstanding LBO loans at the nine major banks stood at ¥6.6 trillion as of September 2023, and M&A by Japanese companies is believed to have reached a record level. LBO loans are the main form of financing and are said to carry higher interest rates than ordinary corporate loans. M&A-related financing may continue to expand.
Megabanks are believed to be seeking M&A advisory mandates through their affiliated securities firms while securing fee income alongside lending agreements. There is also speculation that they are strengthening their capacity to provide financing, including LBO loans.
Lending by investment funds is also expanding, much of it in the form of subordinated loans, which rank below ordinary loans in repayment priority. It is important to note that funds apply different evaluation criteria to equity investments and lending.